Identifying an under-reported but material change to the industry Considering the potential global and Australian ramifications Options to manage

1. Telco Strategy
2016
• Identifying an under-reported but material change to the industry
• Considering the potential global and Australian ramifications
• Options to manage
Neil Aitken : njaau@yahoo.co.uk : +61 414 202001

2. Executive Summary : Apple leasing phones direct to customers + the impending ‘eSIM’ suggest a huge change for telco
worldwide & a rise of MVNOs. Big phone companies will not be selling phones & will face significantly higher competition.
• 59%1 of buyers already buy their own phone & add a SIM later.
• Between 16%2 and 41.5%3 of Australians ( depending on the
segment analysed ), have already moved to a smaller phone
company/‘network reseller’ for the SIM Only services they require.
• These companies, also known as MVNOs usually sell SIM Only
deals including prepaid. They don’t sell phones under contract.
• Apple set the tone for the mobile phone industry.
• Apple are about to make a significant change which will accentuate
the SIM Only / network reseller trend.
• Apple have started leasing their iPhones4 direct to consumers in
the USA. Samsung are doing the same thing.
• ‘Soon’ ( 2016 is forecast by the FT ) Apple will include an ‘eSIM’ in
their phones. This replacement for the physical SIM will make it
much easier to compare plans and move network providers.
• This is likely to mean a great deal more choice, flexibility and
potentially data in the phone plans Australians have access to.
• It’s also likely to lead to the uptake of network resellers / MVNOs.
• The ramifications for tier 1 telcos are likely to be material.
• It’s also going to require that consumers learn 2 new things.
1. What a network reseller / MVNO is.
2. How to stay abreast of price changes.
+
means
No more of
this
1. http://www.afr.com/business/telecommunications/flexibility-key-to-amaysims-appeal-says-ogrin-20150715-gicsp4
2. http://www.itwire.com/your-it-news/mobility/64934-new-market-share-data-shows-rise-of-mvnos
3. http://www.itwire.com/it-industry-news/telecoms-and-nbn/70215-telstra-share-loss-in-consumer-postpaid-sector-as-optus-enjoys-postpaid-growth
4. http://time.com/4028327/apple-iphone-upgrade-program/

3. The majority ( 59%2 of Australians ) already buy their own phone and add a SIM later. It’s often cheaper than going to the
phone company. In the iPhone example below, tying together this SIM + purchasing the phone outright saved 18%
Factors driving SIM Only sales :
• They give you bigger bills than you expect : The industry has charged
‘staggering’ out of bundle data usage ( leading to what the industry
describes as ‘Bill Shock’ )– something one third1 of us have experienced in
the last 6 months, the reasons for the dissatisfaction are clear.
• They charge too much and they have patchy networks3 : In Australia,
sentiments about mobile phone companies often run deep. People
dislike Telstra for charging too much and Vodafone for coverage.
The Majority Already Buy Their Own
Phone and add a SIM later
SIM Only agreement Phone under contract
Above : This individual got better coverage, more inclusions and saved 18% by
tying together their own SIM Only Deal. Disclaimer : The author worked at
WhatPhone – the company which produced this infographic.
1. http://www.computerworld.com.au/article/580021/telco-bill-shock-still-dead-survey-finds/?utm_campaign=computerworld-today-pm-edition-2015-07-
20&utm_medium=newsletter&eid=-6787&utm_source=computerworld-today-pm-edition
2. http://www.afr.com/business/telecommunications/flexibility-key-to-amaysims-appeal-says-ogrin-20150715-gicsp4
3. http://www.theaustralian.com.au/business/companies/better-coverage-could-come-at-a-cost-of-customers-for-telstra/story-fn91v9q3-1227443326977

4. Smaller Phone Companies ( known as ‘MVNOs’ in the industry ) are growing rapidly as a proportion of the market
‘Better data inclusions’ and ‘peer recommendation’ is what’s attracting people who own their own phone to MVNOs
Australian MVNO market share rose from 20% to 24% between
June 2013 and June 2014 – that’s a 20% increase :
• The global MVNO market is already growing at 10%2 per year.
• Key reasons for switching included better data inclusions and
recommendations from friends and family.1
• “A key trend in the data in both prepaid and postpaid is the
strengthening of MVNOs, who have seen their total share grow
from 13.2% in June 2013 to 15.6% in June 2014,”2
• “Amaysim is now very well established but still growing in
prepaid and, with the highest satisfaction rating and a share of
7.3%, is bigger than Virgin Mobile.” 2
• “Another high growth MVNO is Aldi Mobile which in the space
of 18 months has secured a share of prepaid customers of
nearly 4%,”2
MVNOs have a disproportionately high market share in no
contract plans :
• Customers of MVNOs are generally smartphone users who own
their phones.1
• They are attracted to straightforward plans which offer good
value and large data allowances without the longer term
commitment of postpaid plans. 1
19%
21%
40%
20%
MVNO Market Share June 2013
VHA
Optus
Telstra
MVNO
15%
21%
40%
24%
MVNO Market Share Sept.2014
VHA
Optus
Telstra
MVNO
10%
17%
32%
41%
Market Share No Contract Plans
VHA
Optus
Telstra
MVNO
All reporting on this page comes from quarterly Kantar statistics. Specifically : 1. 1 http://www.itwire.com/it-industry-news/telecoms-and-nbn/70215-telstra-share-loss-in-consumer-postpaid-sector-as-optus-enjoys-postpaid-growth and
2. http://www.itwire.com/your-it-news/mobility/64934-new-market-share-data-shows-rise-of-mvnos
Between June
2013 and Sept
2014, MVNO
market share
rose 20%
MVNOs are
41% of the no
contract
market but
only 24% of
whole
market.

5. A number of national and international factors are driving SIM Only uptake and revolutionizing the industry
Lower prices, increased availability, flexibility & desire to have the latest phone are causing shoppers to buy own phone + SIM
• Tmobile : Internationally, the move to SIM Only +
buy device outright even stronger than we’re
seeing here1. Tmobile began in 2013. Since then,
Verizon, America’s ( joint2 ) largest telco has also
done away with 2 year contracts1.
• Company push will turn the Australian market SIM Only :
SIM Only already dominates5 the telco market. With
phone companies and major handset manufacturers
pushing to separate the handset and the network service,
things will change quickly.
• Cheap phones have become available : There are a
growing array of ( cheap ) places to buy new or
second hand phones. Kogan sells the iPhone cheaper
than Apple.4
• People will learn to save money by splitting their phone
and SIM Only contract6 : In many circumstances,
customers can save up to 30% on their bill over 2 years
buying the phone outright and adding a SIM. They save
more if they already own their phone or get it 2nd hand.
• Expectations of instant gratification3 : In a world of
instant gratification, people simply don’t like being
obliged to stay with a single phone company for a 2
year period. They want a new phone when they
want a new phone.
• Customer pull will drive further uptake : One of the
distinguishing features of SIM Only plans is that they
almost exclusively sold with no contract. Users can change
phone companies whenever they want to, move deals and
change allowances without penalty, on whim.
• Phone companies want to sell airtime : Phone
companies are in the business of selling you
network services : calls and data. To them, the
phones were an enticement to get you to sign up
with them.
• Optus, Telstra and Vodafone will separate charging for
SIMs from charging from phones : Subsidizing handsets
created baggage for phone company accountants. They
may be pleased to see the hardware go.
1. http://time.com/4028327/apple-iphone-upgrade-program/ 2. http://www.statista.com/statistics/199359/market-share-of-wireless-carriers-in-the-us-by-subscriptions/ 3. http://www.boston.com/lifestyle/specials/2013/02/01/the-growing-culture-impatience-where-instant-
gratification-makes-crave-more-instant-gratification/eu5SPWCVTmFp9Nm6dUndhP/story.html 4. http://www.crn.com.au/News/315769,how-kogan-can-sell-the-iphone-5-cheaper-than-apple.aspx 5. http://www.afr.com/business/telecommunications/flexibility-key-to-
amaysims-appeal-says-ogrin-20150715-gicsp4 6. http://www.wsj.com/articles/kill-the-wireless-contract-buy-your-own-phone-1424807865
Who’s doing what that’s affecting SIM Only ? What does that mean for Australia ?

6. Apple’s ( and others’, including Samsung’s ) leasing programs will likely accelerate the move to SIM Only
Apple have ‘changed everything1’ in the market for phones since the launch of the iPhone
• One of the most significant elements of Apple’s 2015 iPhone 6S release,
was under-reported in Australia : In addition to the new features and
colour they brought to market, Apple launched their new product with an
innovative funding option.
• From this year, in the USA, Apple will be leasing iPhones to customers
direct : That is, not through a phone company. Leasing payments will be
made via a monthly payment plan4.
• The facility is known as the Apple Upgrade Program : Those who enter
the scheme are offered the chance to upgrade their phone every year for
a monthly costs which starts at $324 (USD ).
• Samsung followed suit soon after : A few days after Apple’s leasing
announcement, Samsung launched it’s own leasing program5 or it’s own
phones.
• Between them, Apple and Samsung, the world’s two largest producers of
handset3 : Together, they make up between a third and a half of all
phones sold globally, depending the period being studied3. They lead
market behaviour by dint of their size.
• Phones leased from Apple will come with a ‘value add’ of Apple Care for
the period of the lease.
• Some telecoms analysts suggest that, over time, these schemes may
reduce the hold that telcos have on their customers6.
Below : The Apple Upgrade Program2 is an existing feature in the US
Below : Samsung soon followed suit
1. https://gigaom.com/2011/06/29/the-iphone-effect-how-apples-phone-changed-everything/
2. http://www.apple.com/shop/iphone/iphone-upgrade-program
3. http://www.idc.com/prodserv/smartphone-market-share.jsp
4. http://time.com/4028327/apple-iphone-upgrade-program/
5. http://www.forbes.com/forbes/welcome/
6. http://www.betaboston.com/news/2015/09/11/apple-lease-program-challenges-carriers/

7. Apple’s eSIM ( electronic SIM ) will make it easier to move telcos, further accelerating the trend
The eSIM removes the need for physical SIMs. Users will pick ( and provision ) a telco from their phone.
• At the same time as the nature of the commercial agreement
between individuals and their phone companies is being
fundamentally changed, the technical relationship between them
is also being updated.
• Led by Apple and Samsung, the GSMA ( the Global technical group
responsible for standards agreed between manufacturers for
wireless telecommunications devices ) have agreed on the eSIM1.
• The new eSIM standard will embed a ‘virtual’ SIM in new phones.
• eSIMs will likely launch in the UK and USA first. The following
telcos appear3 to have signed up. AT&T Deutche Telekom, Etisalat,
Hutchinson Whampoa, Orange, Telefonica and Vodafone. ( Note,
Vodafone also operates in Australia – a joint op. known as VHA. )
• The eSIMs is likely to be ready ‘soon’2
• “It <The eSIM> will come in the form of an embedded SIM
card, one that cannot and need not be removed from a device -
something that consumer electronics manufacturers are also keen
to adopt for connected items around the house as part of the
Internet Of Things”3.
• Together, leasing phones and adding eSIMs will create a number of
opportunities / threats in Australia next year. ( Next slide. )
Above : The Financial Times covers the impending arrival of the ‘eSIM’,
removing the need for physical SIMs.
1. http://whatphone.com.au/guide/esims-and-what-it-means-for-the-australian-market/ ( The Author
worked at WhatPhone 2. http://www.ft.com/home/us 3. http://www.pocket-lint.com/news/134640-
what-is-an-e-sim-and-how-will-it-change-smartphones-for-the-better

8. Likely ramifications : While speculative (as all views of the future are), these seem likely ramifications. Digital & mobile will be
accelerated as acquisition channels. MVNOs will become more powerful. Telcos’ actions affect consumers’ and vice versa.
• A dramatic shift away from retail sales to digital : It
is far more likely that people will make a decision as
to the operator and plan they want to join from
their phone, using the information which they have
available online.
• Minimise acquisition costs : Super churn and
competition will require telcos establish a cost
effective way to obtain customers in such a
competitive market.
• Wholesale pricing changes : Possible price increases
from major telcos in wholesale pricing to stem
churning cust. nos. Potential regulator response to
ensure competition at SP level maintained.
• Heightened brand related spending : Brand can be
thought of as an intangible quality asset used to
derail a rational decision making process. Optus has
notably added a lot of ‘brand’ related ( unique )
product features e.g. Premiership Football.
• Focus on what’s important to customers :
Straightforward, data inclusions and a focus on
Social Media are elements we know to be important
to customers. ( See slide 4 )
• Increased frequency of movement between phone
companies : With no contracts to constrain them,
individuals are likely to shop around more often and move
providers more regularly – as deals appear.
• Use telco plan comparison engines : There is plenty of
information online and a number of comparison engines
which highlight how easy it is to move. Comparison
engines may become a more significant cost of acquisition.
• A greater level of competition in data inclusions : Data
inclusions are often the first thing customers check now,
when comparing plans. This is especially true in Oz since
Optus and Vodafone moved to Unlimited voice & SMS.
• Choice overload1 & dissatisfaction from customers :
People are already overwhelmed with the choices
available to them in life, let alone the myriad from phone
companies. The requirement to research and move is likely
to further reduce their satisfaction with telcos.
• Use MVNOs ( Network Resellers ) : More MVNO sales :
The market is moving to SIM Only. MVNOs are
disproportionately represented in the SIM Only market (
it’s all they sell. ) This is likely to benefit MVNOs. Will
Apple become an MVNO as Google have started to with
project ‘Fi’ ?
Possible Effects on the Telecommunications Industry Possible Effects on consumers buying phone services
1. http://www.nytimes.com/2010/02/27/your-money/27shortcuts.html?_r=0